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Moody's: China's new asset-liability management rules are credit positive

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Moody's: China's new asset-liability management rules are credit positive

China's new rules on insurers' asset-liability management are credit positive as they will help insurers in reducing the risk of an asset-liability mismatch, Moody's said.

The rating agency said the new rules will allow for a more consistent and precise measurement of duration and liquidity of insurers' assets.

The country's insurance regulator on March 1 announced rules to categorize insurers into four classes based on their asset-liability management performance. The new rules cover quantitative and competency assessments on both life and nonlife insurers' asset-liability management as well as a set of rules to guide insurers on preparing such reports.

The competency assessment would evaluate whether an insurer has a sound and effective asset-liability management system. The top-ranked insurers will receive favorable treatment from the regulator, including more freedom in what they can invest in and what products they can offer.

The new rules apply a risk-adjusted measurement to the calculation of investment return to better reflect the risk nature of investment assets, Moody's said. This will prevent life insurers from offering overly high credit rates, particularly on savings products.

Moody's noted that the new rules will help Chinese insurers reduce risk by discouraging them from using short-term liabilities to fund holdings of long-term risky assets.